2024 (3) TMI 665 - HC - Income Tax

Reopening of assessment u/s 147 - Disallowance of CSR amount u/s 37(2) - reason to believe or suspect - tangible material to reopen - AO power to review not to be confused with the power to re-assess - amount being 50% of the aggregate donation was deducted and claimed u/s 80G - This amount was donation in respect of approved trusts/institutions, for the purposes of Section 80G - HELD THAT - From the perusal of the documents, two glaring facts emerge. One is that all material/documents necessary for computing the income were disclosed and submitted by Petitioner during the course of assessment proceedings leading to an irrefutable conclusion that there was no failure on the part of Petitioner to disclose fully and truly all material facts. Secondly, there is a notable absence of any fresh tangible material coming to the knowledge of the AO and the reopening of assessment is purely on a re-examination of the very same material on the basis of which the original assessment order was passed. It is a well settled principle of law that an AO has no power to review and this power is not to be confused with the power to re-assess. The Apex Court in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. ( 2010 (1) TMI 11 - SUPREME COURT has reiterated that mere change of opinion cannot be a ground for reopening concluded assessment. AO without appreciating the true import of the decision of RAJESH JHAVERI STOCK BROKERS P. LIMITED 2007 (5) TMI 197 - SUPREME COURT continue to reopen assessments on the ground of income having escaped assessment despite the fact that all the material and information was already available with him while passing the original assessment order. Furthermore, while conclusive proof of escapement of income may not be necessary to reopen an assessment, the least that is required is a requisite belief based on tangible material which was not accessible to the AO or that which was deliberately withheld by Assessee, which then would amount to non-disclosure of relevant information. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. An AO, who has plainly ignored relevant materials in arriving at an assessment acts contrary to law. The facts in the present case clearly show that the AO was infact in the knowledge of and in possession of all the relevant details regarding the deductions on account of CSR. The computation sheets, the tax audit report, the receipts from the donees and the other relevant documents were all provided and disclosed by Petitioner. It is thus a clear case of change of opinion by the AO. The notice of reopening assessment does not by any measure disclose any material leave aside any information leading to formation of cogent and requisite belief. The finding of the Apex Court in Rajesh Jhaveri 2007 (5) TMI 197 - SUPREME COURT must not be used by AO to reopen assessments to review the original assessment order on the basis of a change of opinion of the AO, as done in the present case. Further, the reasons to believe notice itself indicates that the AO was already seized with information prior to passing of the original assessment order and as such, there is no tangible information on the basis of which he has allegedly formed the requisite belief. Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the notice dated 27th March 2021 issued under Section 148 of the Income Tax Act, 1961.
2. Rejection of objections to reopening of assessment for AY 2017-18 by the order dated 21st December 2021.
3. Allegation of income escapement due to CSR expenditure claimed under Section 80G.

Summary:

Issue 1: Legality of the Notice under Section 148
The petitioner challenged the legality of the notice dated 27th March 2021 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, seeking to reopen the assessment for the Assessment Year (AY) 2017-18. The petitioner contended that the jurisdictional preconditions were not fulfilled as the belief formed by the AO was based on an audit objection without fresh and tangible material. The court observed that all material/documents necessary for computing the income were disclosed during the original assessment proceedings and there was no failure on the part of the petitioner to disclose fully and truly all material facts. The court concluded that the reopening of the assessment was based on a mere change of opinion, which does not constitute a valid reason to believe that income has escaped assessment.

Issue 2: Rejection of Objections to Reopening
The petitioner also challenged the order dated 21st December 2021, which rejected the objections raised against the reopening of the assessment. The court noted that the AO had previously examined and accepted the petitioner's claims regarding CSR expenditure and deductions under Section 80G during the original assessment proceedings. The court reiterated that an AO has no power to review an assessment based on a change of opinion and emphasized that reassessment must be based on fresh tangible material. The court found that the AO's reasons for reopening the assessment were not based on any new information but rather on a re-examination of the same material considered during the original assessment.

Issue 3: Allegation of Income Escapement
The revenue contended that CSR expenses are specifically disallowed under Section 37(1) read with Explanation 2 of the Act and cannot be allowed under Section 80G. The court, however, agreed with the petitioner that donations to eligible trusts would still qualify for deduction under Section 80G even if the contribution is out of CSR funds. The court found that the AO had examined all aspects related to CSR expenditure and deductions under Section 80G during the original assessment, and there was no new tangible material to justify the reopening of the assessment.

Conclusion:
The court held that the notice dated 27th March 2021 under Section 148 and the order dated 21st December 2021 rejecting the objections were untenable and could not be sustained in law. The petition was allowed, and the rule was made absolute in terms of quashing the impugned notice and order. There was no order as to costs.